Burned investors find no solace as lawyers pass on low-money cases. (Up Front).

Gail Wilborn has found out the hard way that seeking to recover money lost in the stock market through binding arbitration is more easily said than done.

Even exploring arbitration is no sure bet.

Wilburn had an account with Merrill Lynch & Co. that lost $370,000 - half its value -- between the market's peak in early 2000 and June 2002. She recently spent $1,400 to have the account analyzed for a local law firm that specializes in arbitration cases.

In the end, the law firm -- swamped with new business -- declined to take her case.

"I spent $1,400 and got nothing," she said.

"Investors (considering arbitration) need to be aware that they may also spend money on profit-and-loss statements, and also end up with lawyers who decide not to take their case," Wilburn said.

The number of arbitration cases filed with the National Association of Securities Dealers is on track to rise by 8 percent this year, on top of a 24 percent rise in 2001, the first full year of the bear market, according to NASD data.

Merrill Lynch is among a number of brokerages whose research has been attacked as biased in favor of investment banking clients. Earlier this year, the firm settled a lawsuit brought by New York Attorney General Eliot Spitzer by paying $100 million and agreeing to alter many of its analyst practices. Since then, the securities industry has established new rules governing analyst conduct and disclosure.

Wilbum opened the account with a local Merrill Lynch office in 1997 and it gained in price through the market's peak in 2000. But nearly all the profits evaporated in the subsequent downturn.

In July, Wilbum phoned Beverly Hills-based Aidikoff & Uhl, a well-known plaintiff securities arbitration law firm. Nameplate partner Phil Aidikoff is president of the national Public Investors Arbitration Bar Association.

Wilburn discussed her portfolio with Aidikoff & Uhl associate Ryan Bakhtiari, and she agreed to go to his office for a meeting, according to Wilbum.

After reviewing her case and monthly account statements, Bakhtiari encouraged her to proceed, she said. But he required a "profit and loss analysis" be performed on her account by Massachusetts-based Secure Financial Services. Such an analysis is standard practice in arbitration cases, Bakhtiari said.

"The monthly statements are complicated," he said, referring to Merrill Lynch statements sent to Wilburn. "The total account size may shrink, but it could be due to sales, or suitable investments. You have to have the professional P&L statement done, and it costs money."

Wilburn said that based on her meetings with Bakhtiari, she got a sense that her case was strong and suitable for arbitration. She went ahead with the account analysis -- which, she claims, Bakhtiari said would cost $500.

The analysis was done in August.

Bakhtiari says he told Wilburn that the profit and loss analysis would cost between $500 and $1,500. He also says he made clear that the outcome of analysis was a condition of his firm's pursuit of the case.

The final charge for the analysis was $1,400. Wilbum paid it on Aug. 6.

After reviewing the profit and loss analysis, on Aug. 15 Bakhtiari sent Wilburn a letter informing her that his firm would not take the case.

"We are cognizant of the fact that ... unsuitable investments were made which resulted in large capital losses," the letter read. "However, it has been our experience that arbitration panels sometimes view a claim and account on based on a 'Total Return Analysis.' Based on a Total Return Analysis, Merrill Lynch will argue and an arbitration panel might view your accounts as being profitable."

In other words, even though profits made in the first three years were all but wiped out by losses in last two, the overall picture was not so bad -- or so a three-member industry arbitration panel might conclude.

This could be the view whether or not Wilburn moved into unsuitable investments based on her stockbroker's advice or on any suspect recommendations by Merrill Lynch analysts.

Bakhtiari continued in his letter: "While we believe other contrary arguments are correct as a matter of fact and law, we cannot with certainty determine the outcome of this argument."

While Wilburn would likely prevail on the issue of liability, she might fail to win any damages, he said. "Therefore, we are not in a position to take this case on a contingency basis," he said.

Bakhtiari said that while Wilburn's case was unfortunate, the profit-and-loss statements are a necessary part of business. (As a rule, Aidikoff & Uhl takes one-third of arbitration awards as its fee.)

Bakhtiari said his firm has no financial interest in Secure Financial Services and receives no referral fees or other financial incentives to steer business its way.

Indeed, Secure Financial, one of the few that specializes in analyzing brokerage accounts for arbitration proceedings, has seen its business quadruple this year, according to its president, James Bushey.

Aidikoff & Uhl is "the biggest firm in Beverly Hills (and) they are very choosy about what they do," said Bushey. "There are other firms that would probably take her case."

A Merrill Lynch spokeswoman had no comment.